The Government As An Enabler And Regulator

Published Date: 02 Nov 2017

Markets, if they operate competitively are good at allocating resources and producing efficient outcomes. But it also creates inequalities among households, individuals, regions, gender, urban-rural divide. Government, if it is benign and uncorrupt, can minimize these inequalities policies of investment and regulations. Since 2007, the middle class in Pakistan is hurting under the burden of high inflation, low purchasing power and diminished employment opportunities.

What should consequently be the suitable association between Government and Private businesses in Pakistan?

Government as an Enabler and Regulator

The politicians and bureaucrats in Pakistan are neither equipped nor have the desire for risk taking in running businesses. The poor record of nationalized companies since 1973 corroborates this assertion. Suffice to say that the production, distribution, marketing, trading of goals and services should be carried out by the private sector. What the Government can do is to ensure a level playing field for all market participants. If the market structure is imperfect, the welfare of the public who buy these goods and services will be hurt. The Government through Competition Commission, regulation, legislation and oversight has to guard the consumers from the exploitation of market power.

Protector of Life and Property

Another important function of the government is well known – national defense. The threat to security had accentuated after September 2001 but an expanding market and a higher growth provided handsome returns in pre 2008 period thus offsetting some of the security concerns.

Enforcer of Rule of Law and Contracts

Private markets cannot work efficently if property rights are not cosseted, contracts are not honored and disputes are not settled through an open system of the courts of law. If land disputes loiter on for over decades in the courts, businesses will shy away from entering into long term investment contracts in Pakistan. Our country’s percentile rank in the World Bank’s rule of Law Indicator has deteriorated from 65 to 81.

Provider of Infrastructure

The fourth area of government duty is the proviso of physical infrastructure – roads, bridges, highways, ports, terminals, pipelines, railways, power, gas, dams, irrigation water, etc. These are basically public goods whose benefits cannot be appropriated exclusively by any one group of citizens. In Pakistan, the opposite has taken place. Other countries have successfully experimented with Public-Private Partnership to meet infrastructure deficiencies and although every government in Pakistan has paid lip service to it, nothing of worth has been achieved so far. Even the utilization of the existing capacity in the private sector is sub-optimal because of the circular debt problem.

Investing in Human Capital

The fifth area of responsibility for the Government is to invest in human development. Pakistan ranks 101st among 135 countries according to the Human Development Index 2009. Adult literacy is grimly low – 56 percent of the population is illiterate. The private benefits from investment in human development leak out because of what the economists called ‘externalities’. For this reason, public sector funds education and health. Deplorably Government’s allocation in Pakistan for Education and Health is only 2 percent of GDP while the task of educating 50 percent of the population below the age of 19 is enormous.

To carry out the above mentioned several roles there are two necessary nuts and bolts that the Government should possess. The bureaucracy administering laws, rules and regulations, protecting life and property or building infrastructure or running schools and health centers should be competent, and free from massive corruption. Inefficiency and corruption cause heavy harm to the economy and asphyxiate growth of businesses. Pakistan’s rank in Transparency International Perception Survey now falls below Bangladesh – once perceived as the most corrupt country in the world. With every incoming government reversing the policies, projects and programs of its predecessor, improbability about the country’s long term commitment has enhanced.

On the other hand, I would argue that private sector should proceed as a good corporate citizen, endorse good corporate governance, invest in your own future, be equipped to face competition and pursue social mission.

Good Corporate Citizen

First, the private businesses have to diligently and honestly apportion a part of their profits to the Government in form of direct taxes, pay all indirect taxes and duties without concealing or misrepresenting. Lower Tax-GDP ratio clearly indicates the predisposition on part of our businesses to make boon profits at the cost of the government. Corporations constantly raising a voice against corruption are no substitute for the dishonest behavior on the part of some of our private businesses. For private businesses, both financial and environmental bottom lines should be desirable.

Corporate Governance

Second, open transparent public exposé of their performance and financials would aid to bring in other people’s money into their businesses. This improved integrity in turn, will magnetize financing from wide variety of sources for the firm. The earlier the Pakistani firms set the right route, the benefits of corporate governance can be reaped at national level.

Competition

Third, our manufacturing industries have yet to understand that they are still operating behind tariff/non-tariff barriers. India lowered its high tariffs to a level of about 10 percent. East Asian countries and China have average tariff rates of around 5 percent. It is recommended that openness of the economy is important for raising growth and attracting technological innovations.

Lower trade barriers create competition in domestic industries to develop into more efficient industries else they would not survive. Conducting business in domestic market under protectionist’s policy is easy. Perpetuating this into the market of Pakistan would never allow our industries to go global and trade across borders.

Research and Development

Fourth, the private sector has been less focused in promoting Research and Development and investing in high quality manpower. Short term profit has blinded them to the good worth of investment in long term survival. The future of the companies and Pakistan in the global market is exceedingly reliant upon the quality of human resources, leadership of its corporate and on its ability to adapt to changing global environments. Our government has not paid much attention to Human Development sadly but for the private sector, filling in the gap is indispensable for talent management. Private sector firms in Pharmaceuticals, Chemicals, Agro-Food, Electronics, IT ought to step up their R&D activities.

Social Mission

Finally, let me make a distinction between Social Mission of the Corporate and the Corporate Social Responsibility (CSR). Companies, for example drilling or producing oil or gas in the backward areas of Balochistan or exploring and exploiting minerals should help those communities by providing education, health, drinking water, housing, employment opportunities, service contracts, etc. Bottom-of-the pyramid marketing is taking a life of its own in many parts of the world. The challenge for corporate leaders is even more formidable if the external environment is hazardous and the government policies and practices are unreliable and erratic.

To sum up, the apt form of Government – Business Relations in any nation state has to emerge from the country’s own historical, cultural, social and economic scene. If the Government sticks to things which nobody else but the Government itself can only do and the private sector focuses on activities for which only it is equipped and capable then a lot of air can clear up and the country can march forward. The level of interaction between the two is not always so clear cut as described above. In India, in pre 1991 period the Government was the dominant player. Since 1991 the business has inundated the Government. Business leaders in India are leading India on the path of prosperity in the face of a bureaucracy that clings to its bequest.